Question

Explain why the market for health insurance is more competitive than the market for medical care

Answer 1

More than 90 percent of private health insurance in US is group insurance provided by the employer. Market share is the indicator of market power. In the health insurance market, monopoly power is limited, as the employer can pool the risk by self-insuring. Strict reserve requirements deter entry by new small firms. The barrier does not apply to established firms into new geographic areas. Discriminatory input pricing power is the determinant of market power. The insurer is chosen by employers to reduce the tax it pays. It is possible to have market power in excess of regulatory, or, tax advantages.

Monopsony is the market situation in which there is only one buyer. There is a monopoly when a higher price is charged to some buyers. In case of monopsony, there is no moral hazard. Insurers can control the market by manipulating the prices paid to suppliers of medical care. Some of the services will not be available if the insurers are monopsonists.

Health insurance more competitive than the market for medical care as insurers can be the monopsonists for the medical care market. These control the level of service by holding the prices paid to hospitals. Monopsony has anti-competitive distortions in the medical care market. The distortions are in the healthcare market. The healthcare market is highly concentrated. Prices are unsustainable. Healthcare prices are set by insurers, and, providers. They are not competing to provide high-value care.